Life is defined by numbers. Think about it. You have a lucky number. Sports analysts closely monitor statistics to predict winners. Most colleges require a minimum GPA for students seeking admission. And long ago, our country began issuing everyone 9 digit identification numbers (after all, more than likely there are at least several people out of 300 Million who share your first and last name).
Credit Scores are relied on heavily to determine future risk of default. Those with lower credit scores will statistically be more likely to fall behind on payments. Whether you are applying for a mortgage, auto loan, credit card, personal loan or student loan, your credit score will weigh heavily in the lender’s credit decision. There are 3 credit bureaus, Equifax, Experian & Transunion, and some lenders will request a single bureau report and some will request a “tri-merged” report.
Mortgage underwriting requires a “tri-merged” report, and the middle score will be utilized for underwriting purposes, as well as interest rate pricing. Today, I pulled a tri-merged report for a 1st time buyer, and the scores were 764, 776 and 773. The buyer’s mid-score is a 773 – a very good score by the way.
Credit scores range from 350 – 850, with 850 being the highest. I have been in the mortgage industry since 1995, and I cannot recall ever pulling a report below 400 (you really need to do a lot of damage to get below 500). I seldom see scores over 800; I estimate out of 100 reports, less than 10% have scores of 800 or better.
Since 1995, I’ve easily reviewed more than 3,000 credit reports, and I want everyone to learn what I have so they can maximize their credit scores.
Step 1: Pay your bills on time. Auto-Pays through your bank, or creditors, can be helpful with this. Or just do it the old-fashioned way, and grab a Sharpie, and mark your calendar for bill due dates.
Step 2: Keep your revolving (credit card) balances low. Try your best not to exceed 30% of your credit limit. Once you cross that 30% threshold, your credit scores will typically decrease. If you max-out a credit card, you could see a 20 point drop or more.
Step 3: Do not – I repeat – do not close an account until it is paid-in-full. I see this all too often on credit reports. Some have told me they closed the account due to a dispute with the creditor. Trust me, you are not hurting the creditor, since you still owe the money, and will stay pay interest on it.
Step 4: Pay those doctor, dentist and hospital bills. Failure to pay these bills will often result in collections. Medical collections are the most common collections on credit reports. If you have questions regarding a medical bill, call the service provider, and then call your insurance company to find out whether it is your responsibility.
Step 5: If you are an authorized user on a credit card, and the account is not in good standing, have yourself removed from the account. The account owner can contact the creditor and request them to do so.
Step 6: Pay more than the minimum payment due on your accounts. If you pay just the minimum each month, not only will you spend more on interest, you could harm your credit score.
Step 7: Sign up for Credit Monitoring with Equifax, Experian or Transunion. For the cost of about $.50 per day, you can have access to tri-merged credit monitoring. I use Equifax.com myself, and I get a text and e-mail alert anytime there is a change to my credit report (new account, balance increases/decreases, credit inquiries).
The best credit scores = the best interest rates. Utilize these tips to save yourself big money on your home, car, credit card and personal loans.